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03/26/2004: "Take This, Laffer"

Maybe this analysis is valid and maybe it isn’t. As an intellectual exercise, it’s not much different from Lafferism, other than that it reaches the exact opposite conclusion – that raising taxes increases revenues while strengthening the economy). Lafferism assumes that taxes are a drag on the economy. They just as easily be viewed as just another form of economic activity – consolidated payment for government services. It’s like buying services on a package basis. Government spending can be thought of as an investment in society at large. Businesses do not consider investments a drag because of the net benefits they provide. Cutting a business’s internal investment would usually be considered a bad development by analysts. Cutting government spending is the same as penalizing economic activity. It’s like having a lot of uncollected debts. Interest payments are much more poisonous to the economy since it siphons wealth out of the country. If it’s not true that taxes are a drag on the economy, then Lafferism is discredited.